What is the licensing model in international business?

The licensing model in international business is fundamentally about allowing a foreign entity to use a company's proprietary technology or brand under agreed-upon terms, typically involving the payment of royalties or fees. This model enables local production of proprietary technology, which is beneficial for both the licensor and licensee.

By allowing local companies to produce goods using the licensor's technology, the licensor can expand its market reach without having to invest heavily in new facilities or operations abroad. It also enables local producers to utilize proven technology, which can enhance their competitive position in the market. This method is especially valuable in international contexts, where market entry barriers, such as regulatory issues or local competition, can be significant.

In focusing on local production, this model facilitates quicker access to new markets and often results in lower overall costs and risks than setting up wholly-owned subsidiaries. Thus, the licensing model effectively fosters international business growth while leveraging local resources and capabilities.